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Who Should Be in Charge When School Districts Go into the Red?

August 06, 2015

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School districts across the land are contending with rising education costs and constrained revenues. Yet state policies for assisting school districts in financial trouble are uneven and complex. Interventions are often haphazard, occur arbitrarily, and routinely place politics over sound economics.

This brief presents a menu of sensible state responses when districts are insolvent or nearly so, arranged into a tiered sequence of interventions.

1. Collaborative Supports

District leaders receive low-impact assistance in managing their finances. Supports might include convening a budget review committee to identify unnecessary expenditures or assisting district finance officers to develop more accurate projections of future revenue. The goal is to work with leaders to recognize and rectify the causes of distress.

2. Financial Management

At this stage, experts are no longer advisory; they now oversee and manage a district’s financial matters. The goal is immediately to improve district finances so as to avert costly bailouts down the line, while building the capacity of district leaders to manage once the experts leave.

3. Administrative Control

Otherwise known as a “state takeover.” Outside experts manage the entire district, not just its finances. A state-appointed administrator and/or governing commission replaces or supersedes the superintendent and board and operates with additional powers. Changes in district management can be accompanied by an emergency loan if necessary, although any major financial assistance should hinge on complete administrative control. The goal here is to remove ineffective leaders and prevent district bankruptcy and closure.

Few districts need drastic measures. Quiet technical assistance is often enough to help local leaders project revenue accurately and adjust expenditures to match. External advisors can also give district leaders political cover to make unpopular decisions. The fear of greater consequences is motivating too, which is welcome news since most states aren’t equipped to run districts. For districts on a catastrophic course, however, “takeover” is warranted—and from the perspective of students and taxpayers, it is even essential.

Download the brief for information on what each stage entails, as well as profiles of districts and states that have successfully implemented interventions (and those that didn’t).